EGC 2014 Drew v.2
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Transcript of EGC 2014 Drew v.2
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Author Contact:
Drew Leifheit New Media Specialist [email protected]
Cover Photo Credit: National Geographic
28 February 2014
A report for:
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European Gas Conference 2014
Overview
Speakers at the European Gas Conference 2014 in Vienna, Austria made it apparent that Europe's natural gas industry still has its head above water despite the challenges from factors like low demand, subsidized renewables, competition from coal and underused gas-‐fired generation. Clearly, the industry must tread carefully through such a minefield if any large-‐scale investments are to be made in the future.
However, not all was bad news in Vienna. Highlights included new sources like Shah Deniz II gas (and the implementation of the Southern
Corridor pipeline projects), as well as natural gas developments in the Eastern Mediterranean Sea; meanwhile, development of shale gas' potential was also on the agenda.
Maintenance of the gas relationship between Europe and Russia remains a high priority, if the parties can iron out their differences over pricing going forward in the debate over long-‐term oil indexation contracts versus spot pricing. But questions remain outstanding regarding where huge
infrastructure projects like South Stream stand in the context of implementation of the EU's Third Energy Package, which should result in a single, competitive market.
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European Gas Conference 2014 – Day 1
Defining the challenge
To kick things off on Day 1, Francois-‐Regis Mouton, Chairman, GasNaturally, portrayed what Europe's natural gas industry was up against, listing what he defined as its three challenges regarding how it was being perceived.
He explained, “We have a commercial challenge – how are we going to compete on the market with other fuels? Gas in power generation is
suffering badly in Europe; the numbers are scary.”
According to him, the share of gas in power generation in Europe had dropped by 23% between 2011 and 2012, while coal had gained 13%. Mr. Mouton said policymakers were asking if the gas industry had given up on the power market.
The second question they asked, he said, was why gas should be given a bigger market share in the EU energy mix? Polls conducted by GasNaturally in 2013 showed that only 13% of Members of the European Parliament believed that natural gas was a better partner for
renewable power than coal.
He said there was also an advocacy challenge: “Whether speaking to members of the European Parliament, Commission officials or international governments, they keep telling me one thing: that we need to stop whining and crying, stop being anti everything. Some of them are convinced
that we are anti competition, anti renewables, anti open market, etc.
“They tell us that we need to make our case, with a clear message,” he said.
Mr. Mouton contended that it was necessary for the gas industry to “strike a balance between the head and the heart, between the hard economic facts, hard realities of economic competitiveness and security of supply – jobs and growth, without compromising the need to tackle climate change.”
Natural gas, he said, needed not only to compete on the market but also in the marketplace of ideas.
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Gas For Austria and OMV
Offering a bit of local perspective from Austria, Christian Schonbauer, Director General and Head, Department of Energy and Mining, Austrian Federal Ministry of Economy, Family and Youth, recalled that natural gas had great growth prospects moving forward globally, but in Europe
question marks had replaced such optimism.
Making mention of the EU's 2030 targets, he spoke of his country's wealth of hydropower and storage capacities, which meant that 30% of its power needs were covered by renewables, but fossil fuels still played a crucial role, with gas comprising around 22% (not so much coal). Still, Mr. Schonbauer admitted that total energy demand was very questionable – it could go up or down.
Noting that the European Commission had just presented the new energy-‐climate framework, setting targets for greenhouse gasses as well as
for renewables, he mentioned the possibility of natural gas complementing them. “We need to rethink market interventions and make sure that integration of renewables is as swift and as smooth as possible, so we have a contradiction between the subsidy system and the market system – they will not fit together,” he commented, adding that the feed-‐in tariffs of some countries did not work with market mechanisms, which called
for figuring out how to structure a market design.
Given policymakers and their “fixation on renewables” as a means to reduce carbon emissions, he was asked how policy might promote gas-‐fired generation over coal-‐fired.
Of recently published EC policy, Mr. Schonbauer noted: “The renewables targets are not as binding as the greenhouse gas targets are. The Austrian position is that we think that renewables should play a role. My concern is that the targets which the European Union is discussing are
more driven by wishful thinking and not sufficiently on realistic scenarios.”
At the beginning of his talk, Hans-‐Peter Floren, Member of the Executive Board, Gas & Power, OMV Aktiengesellschaft, said that natural gas existed in a “living system, influenced much by economic challenges – unpredictability is probably the biggest challenge we are facing.”
While supply was clearly exceeding demand for gas in the EU27 and Turkey, he noted that power markets in important regions of Europe continued to collapse, despite slightly increased demand from a cold winter in 2013. “This is really not encouraging. We are facing big challenges
here and even when it comes to the mid-‐term outlook we have to say demand stays rather flat, is not recovering and thus we will continue to face a challenging market environment with oversupply.
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“Contracted volumes and capacities to bring gas to the market are above actual demand,” he added, calling it oversupply.
Simultaneously, he said, renewables in Europe had expanded their market share to around a 24% share, driven by EU policy and supported by a high subsidy, especially in Germany.
“Some markets are dreaming of a phase-‐out of coal after 2020, which should restore the balance for gas, but there's a question mark on this,
and it's also highly dependent on the CO2 pricing system.”
More volumes would come onstream, he said, from places like Norway, the Eastern Mediterranean and the Black Sea, while indigenous production in Europe would go down. What would be the consequences of the oversupplied markets? he asked.
Mr. Floren said, “In combination with the new market design of the 3rd Energy package and the existing systems, establishment of virtual trading hubs now giving the main pricing signals to the customers, the decoupling from oil-‐indexation is there and buyers of long-‐term contracts are left
with the challenge to re-‐negotiate their contracts.”
He added that there had been some progress made in connection with that. Convergent pricing, he said, meant that Europe was functioning like one big hub in different locations, which meant that gas traders now had a reasonable arbitrage potential.
The penetration of renewables, he opined, had been an achieved via incredibly high subsidies and had distorted normal competition among various fuels. “The purpose of it was to make the economy more fit for the future, to contract new CO2 reduction targets with the expectation
that CO2 prices will rise dramatically, also making the economy more fit, and bringing down greenhouse gas emissions.
“What happened was the contrary: CO2 doesn't have a price or a very low one; emissions went up, because coal recovered – coal and lignite achieving windfall profits, increasing 10% from 2009-‐13. Our view on this is, it's clearly not what was intended.”
According to Mr. Floren, this had resulted in a loss of competitiveness for European industry. While supporting the energy transition to lower carbon, he said a stable framework was necessary with fair competition. “We need more market forces and efficiency for governing future
development,” he added. “Natural gas is the reliable partner to achieve that goal of a lower carbon environment.”
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The future of gas in the energy mix
Europe may be still debating natural gas' future, said Philip Sauquet, President, Total Gas & Power, while regions like Asia and North America had growing gas demand. Yet he said he was still betting on the slight growth of gas demand in Europe, with LNG the fastest growing segment.
The industry had to ask the question, he stated, “Is gas competitive?” No, he answered.
According to Mr. Sauquet, when one compared a variety of energy sources – gas, nuclear, coal – nuclear might be cheaper. He asked, “How can
we compete on a full cost basis?”
He noted that coal was still “clearly competitive,” but said he remained optimistic. The Emissions Trading System, he said, was designed to achieve EU climate goals via either replacing coal via gas or building new capacity; the latter option was no longer necessary, according to him.
Countering any thought that TOTAL might be anti renewables, he said the company had invested in them, but subsidies could not be justified. By stopping all measures other than the ETS, he suggested, the 2020 CO2 goals could be reached, raising gas demand and resulting in savings to the
tune of USD 40-‐90 billion in Europe.
In a panel discussion dedicated to seeing the role for natural gas in the future European energy mix, Rune Bjornson, Senior Vice President Natural Gas, Statoil, suggested Europe would struggle to meet its targets. Just take the case of Germany, he said, with its USD 20 billion in subsidies for infrastructure, households, etc.
He remarked, “Germany can't say 'on the one hand, I'm going to reduce emissions; on the other hand, keep burning coal.' They seem to have
forgotten that renewables were a means to an end, and now, suddenly, they are very quiet on emissions.”
The UK policy, he added, was also becoming extremely difficult.
Alessandro Della Zoppa, Head of Long term gas supply negotiation, ENI, said his company did not expect to see any significant recovery in demand in the next 5 years, in light of what was occurring with EU regulations. Consumption was staying at 2008 levels.
He commented: “This level is more than 100 BCM/year below what we expected in 2008, when important decisions were taken in terms of infrastructure, supply model.”
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This, he said, resulted in the oversupply problem.
On the supply side, he offered, “With the drop in demand one would wonder why we see prices staying more or less where they were. This is very important for Europe, which will stay dependent on imports, at least for the foreseeable future.”
This, he said, set the framework for discussions with all of Europe's suppliers. “Discussions are really key if you want to promote natural gas; of
course, our ambition would be to promote natural gas in a sensible regulatory framework, but we shouldn't forget that coal has become cheaper and so we have to do whatever we can, from ETS to regulation, to get gas and gas infrastructure cheaper and cheaper for European industry.”
He added that Italy had been “feeling the pain” of demand having dropped.
Using gas to address climate change and secure supply
Addressing the future of unconventional gas, from the perspective of a “coal country,” Kamlesh Parmar, CEO, 3Legs Resources, offered his perspective. Of that morning's session, he recalled, “One thing we've been doing is talking very generally about EU targets and requirements; the
question then is, how does each member state fulfill that?
“With Poland, you've got a country that's heavily dependent on its indigenous coal for domestic energy: it imports 70% of its gas requirements, 98% of its oil requirements. Those imports generally come from the east, so there's a geopolitical element for Poland there as well – reliance on a particular source of supply.”
As Poland was in the EU, he explained, it needed to meet the Union's climate objectives.
“And one of the things Poland has done is push forward with the potential for shale gas, because it's clear that there is a large potential there –
what we don't know yet is, how quite large that will be in reality,” he said.
One of the keys to such exploration in Poland, according to Mr. Parmar, was that it did not require subsidy.
Single market prospects – the Third Energy Package
Speaking of the prospects for a competitive natural gas market in Europe, Klaus-‐Dieter Borchardt, Director B, DG Energy – European Commission, said his organization's vision was not the creation of one single, internal energy market for 28 member states.
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“Our vision is more to connect liquid hubs, which does not mean that we are cementing the markets for a number of reasons,” he explained, adding that zones were connected via harmonized operational and market rules. “Wholesalers and retailers shall compete across the different
zones and at the end of the day we expect that in this system consumers will benefit from the competitive dynamics that such a model will trigger.
“The high degree of liquidity will also contribute to the security of supply in Europe,” said Mr. Borchardt, who said this required clear and detailed rules, like the network codes which were being implemented; rules were also being devised for trading, he added.
Defining the challenge Europe’s biggest natural gas supplier and its contracts
How the big European natural gas suppliers would model their gas supply to the European market was the topic of a panel discussion with
Tatiana Mitrova, Head of Oil and Gas Department, Energy Research Institute of the Russian Academy of Sciences, and Sergei Komlev, Head of Contract Structuring and Price Formation Directorate, Gazprom Export.
Showing a slide from the International Energy Agency (IEA) depicting the major drivers of European gas demand for the power sector, Ms. Mitrova remarked, “The market is changing. We see that it will be extremely difficult to divert this situation. It seems that at least until the end
of this decade we're going to see quite low gas demand for power, which means not growing the demand for natural gas in general. The future of European gas demand doesn't look very inspiring.”
She said there was also another consideration: European indigenous production looked “even worse.” For this reason, she said demand projections were misleading. “You have to look at the import requirements and if you do that you see they are showing constant growth from
most moderate, skeptical and pessimistic scenarios.”
Groningen in the Netherlands, she offered, would be showing -‐10BCM overnight.
“So if we're looking at European import needs we see that even in the most pessimistic scenario, they are set to increase,” she said.
With LNG being diverted to Asia, she admitted that the market was tight in the next few years.
“There will be room to expand supplies and restore positions on the market,” she added. “Actually Gazprom has started to do this already.” According to Ms. Mitrova, gas supplies to Europe had increased 16-‐23% in 2013, approaching the high rate from 2008.
Mr. Komlev offered that there were numerous ways to adjust contracts to existing realities.
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He commented, “The adjustments that are taking place at the moment provide solutions to the problems that we have in the market at the moment. There's a mismatch between long-‐term and hub prices as hub prices are more and more becoming an industry standard, at least at the
wholesaler level. This creates a lot of problems in our relations with clients.”
He challenged Hans-‐Peter Floren's assertion that Europe's markets were oversupplied.
“I haven't heard of any flaring of gas in Europe; it's true that the market is over-‐contracted,” he said.
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European Gas Conference 2014 – Day 2
One piece of the Southern Corridor
To kick off Day 2 of the European Gas Conference, Mr. Reha Aykul Muratoglu, Head of Transit Petroleum Pipelines Department -‐ Ministry of Energy & Natural Resources, Turkey, spoke about his country's two-‐pronged approach to energy: secure its own natural gas supply security and
increase the gas flow across Turkey, specifically via Turkey's piece of the EU's Southern Corridor.
Specifically, the Trans Anatolian Pipeline (TANAP), he said, would be the backbone of the Southern Corridor, with the necessary legal framework having been established, respective agreements coming into force and commercial decisions having been made by members of the Shah Deniz Consortium in 2013, to deliver natural gas from Azerbaijan.
“Turkey has been promoting the East-‐West energy corridor concept,” offered Mr Muratoglu, who said that Turkey had a very sustainable and
transparent policy in the region. He said, “In the short-‐ to medium-‐term we are planning to receive as much as 100 BCM of gas into Turkey of which 40 BCM are aimed to be transported to the ultimate destination of Europe.
“Turkey is very well located among the world's largest hydrocarbon resources and consumer markets as well,” he added.
Natural gas pricing in transition
Christopher Delbruck, CEO, E.ON Global Commodities SE, pledged to speak about market-‐based pricing in Europe. His first assertion was that
Europe had abundant gas available, but it wasn't always where it needed to be.
“Getting gas into Europe is not a logistical problem, it's simply a price problem – that is something we need to keep in mind,” he opined. “Customers either can't afford to pay the price or don't want to pay the price,” he said of price levels, which were a problem for the industry.
Regarding the competitiveness of the power market segment, Mr. Delbruck showed negative spark spreads to explain the kind of generation that was attractive, “meaning that's why gas-‐fired power plants don't run. There are a number of reasons for that, not only related to the gas
price.”
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Coal prices remained very cheap, he stated, explaining the huge coal exports coming from North America. To use gas in the power generation sector, something needed to be done to make it more competitive, he said, adding that because of the gap between US and European prices,
chemical industries, those relying on feedstock were wondering where to move – to Europe or to the US.
From a residential standpoint, households choosing solar or pellets to heat their homes was making it uneconomic for distribution companies to develop in new areas. All of this added up to a crisis, but he said gas still had potential.
“Gas-‐fired power generation could play a role in Europe and there's significant decommissioning of power generation capacity all over Europe, so there's a big gap in the generation mix and the question is, what kind of generation will come in? Will it be loads of renewables and very little
gas back-‐up?”
If capacity markets were introduced, they would not save gas demand, said Mr. Delbruck, who explained to get gas back into the merit order the price of carbon would have to go up 10-‐11 times; coal's price would need to be increased by over 100%, or the price of gas would need to be halved.
A panel discussion dedicated to understanding gas pricing in an evolving market hosted a broad diversity of opinion. Was it possible to find a
mutually acceptable solution for buyers and sellers of gas?
In connection with oil-‐linked pricing, Nils von Hinten-‐Reed, Founder and Managing Partner, CEG Europe, said he wanted to challenge the assumption that the price of oil was going to go up in the future.
“From a supplier's perspective, with Iran and the US coming onstream with increased oil it's not clear to me that the price of oil is something that you want your gas to be linked to, certainly not in another 10 years,” he opined.
He added that there was no fundamental long-‐term relationship between oil and gas.
Regarding long-‐term contracts, Mr. von Hinten-‐Reed said there was little flexibility if one were speaking about 20-‐year timespans. “If you've
liberalized your downstream market, unfortunately you can't not liberalize your upstream – you can't have the two levels not being in synch.
“This is the reason why we have arbitration, so somehow these contracts have to be re engineered.”
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How to make sure customers get the energy they need and at the lowest price were the priorities named by Clara Poletti, Head of Regulation Department, Italian Electricity and Gas Regulatory Authority. “I welcome competition from energy efficiency, from alternative sources as long as
this competition is somehow fair,” she said.
“The current oversupply of gas is helping spot market liquidity, so the question is, do we expect this liquidity to become structural somehow, or what can we do towards that? Being a regulator, I must say that we cannot look at spot markets by themselves; what we are doing and need to do is to change the rules and regulatory framework in order to allow short-‐term markets to work properly. If we don't change the way our gas
sectors work at national and European level, we won't be able to allow for efficient trade of the value of efficient short-‐term markets,” said Ms. Poletti, who admitted it was not an easy task when faced with decarbonization and an economic downturn.
Implementing a “new deal” would take several years, she said, and it would be necessary to define its constructs. How to handle incremental capacity and make new investments was a crucial issue.
“Because now we have a changing system. Once upon a time we could say that new investments were driven by increasing demand; now we are
in a completely different world, not only do we not have increasing demand, but don't have regulated investments from competing fuel sources, so this is a big challenge,” she said.
Sabine Augustin, Director of Strategy & Corporate Affairs, E.ON Global Commodities SE, said she brought good news and bad news. “The good news is that, 15 years after first Gas Directive in Europe, the internal market in gas is functioning, at least in northwest Europe: we have hubs,
they have liquidity, we see a lot of competition and we have cross-‐border trade – so it's working quite well.”
As a result, she offered, prices had converged – a signal of a well-‐functioning market.
“The bad news is, that gas is completely losing out in the competition against other energies right now. We've heard what an important role gas can play in the process of decarbonization of Europe, but the reality is completely different.”
Ms. Augustin said efficient gas-‐fired power plants were not running, coal-‐fired plants were, and no one was thinking about building new gas plants, while competition was increasing in the heating sector. Of the renewables sector in the last 5 years, she said: “Nobody would have
predicted 10 years ago that we would see such a share of renewables as we see today and if we don't watch out carefully, we'll see a similar development in gas losing out in the household sector.”
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She warned against the sector becoming too complacent by pointing to the fall in indigenous gas production in Europe, hoping that there would be enough gas demand. “The reason is that as an industry we've been focusing on an internal debate on what the right natural gas price is: it's
become an academic debate with lots of studies, but what we've completely ignored is that, in a competitive market, it's all about customers,” she said, pleading for an acceptance of market realities, focusing on what customers wanted and efforts to make gas competitive.
Gazprom was the only reliable supplier in Europe, asserted Sergei Komlev, when it came to security of natural gas supplies. He questioned whether Europe needed competition or security of supply.
“I think that Europe rather needs security of supply because it's getting more and more independent,” he answered.
According to him, there were several ways that Europe could ensure security of supply. “Basically, long-‐term contracts were especially designed
to provide this security. Linking to oil products is still a dominant form of pricing international trade of gas -‐ you're basically giving guarantees as a supplier that you will be able to cover your long-‐term contract expenses.
“But if you have an import-‐export contract which is linked to a hub in this case you don't have a firm obligation to deliver,” he added, offering examples of Qatari contracts.
“They were all designed in a way that one part was firm and the rest was not – that means that the shipper or the seller has a right to re direct
flows from the market if the price on the market does not meet their expectations.”
He said he could imagine Gazprom deciding to re direct gas flows in the future, going other places besides Europe. For this reason, Mr. Komlev said Europe should be very careful, because the consequences of not having a stable supply could be dangerous.
Gas Advisory Council: friendly advice
Within that context, but in a different session, Professor Jonathan Stern, Senior Fellow, Oxford Energy Institute, spoke of the Gas Advisory Council, explaining that it was the only institutional body dealing with natural gas issues between the EU and Russia.
“We're trying to provide some joint input on the future role of gas,” he explained. “We advise; we do not make policy, do not dictate to
politicians but when people ask for our advice we tell them what we think.”
Moreover, he spoke of an “early warning system” that the Council provided.
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“The object of that is, either side informs each other if things have happened or are coming up which actually are going to affect the interests of the other side, the idea being to prevent a hiatus in the relationship or at least foresee it coming and hence we've had many discussions on, for
example, South Stream, which will create difficulties in the relationship in the future,” explained Professor Stern.
For 2014, the Council was creating a “high road gas scenario” which would be considered acceptable by both sides with the idea of reducing uncertainty.
According to the group's model, the role of Russian gas was not likely to fall in the next decade, according to Professor Stern, who, regarding pricing, offered that workshops had been held on it.
“Some of these discussions were lively, as you can imagine, but the common ground is that both sides have a desire to retain long-‐term contracts. The difficulty is to move beyond that and get some clarity about how these contracts will lead to change in order to accommodate the
changes which are happening in Europe,” he explained.
Without reaching some sort of compromise, he said, European demand would continue to decrease.
Vladimir Feigin, Russian Co-‐Chair, EU-‐Russia Gas Advisory Council, pledged to look at the role Europe has in Russia, commenting: “In addition to all of the changes on the European gas market changes happening in Russia today will also be very relevant to how flows to Europe will be perceived and the role they will play in Russia.”
The crucial change in Russia, he stated, was the domestic liberalization of the national gas market, even though Gazprom was still considered a
national monopoly. “But if you look at volumes sold n Russia's market, it's pretty clear that gas producers other than Gazprom are catching on. Back in 2008, Gazprom's share of the Russian domestic market was above 80%; last year, Gazprom accounted for only 53%.”
He explained: “The reason is simple – independent producers grow production and they enjoy support by the Russian government. Gazprom can't do anything about it.”
Additionally, pipeline access had also changed and gas producers were beginning to sign direct contracts with Russia, accessing Gazprom
markets. Gazprom's share of the domestic market, he said, would continue to contract and eventually lose most of the Russian market.
This meant that Europe's importance as a customer of Russian natural gas would grow, according to Mr. Feigin, who said that Gazprom was likely to become more flexible.
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More diversity, more competition and potential game changers
Mr. Simon Blakey, Special Envoy, Eurogas, noted the importance of the context of the world market and the alternatives to Russian gas. The economic slump of 2008-‐10 had coincided with the availability of global LNG to European markets in which the American shale gas revolution
had played a role as Middle East exports destined for the US had been diverted to European markets.
He explained: “The tenor of the discussion about the context of the world market regarding the EU-‐Russia relationship was, 'we've got more diversity, more competition, LNG will come in on a spot basis, so the Russians and other pipeline suppliers will have to compete with that.'”
The second half of the story, according to Mr. Blakey, was that in the last 18 months world LNG prices had been very much higher than European prices, meaning European buyers were not buying LNG. This trained the spotlight on the importance of the Russian-‐EU natural gas relationship.
In a session dedicated to new natural gas players and potential game changers, Gulmira Rzayeva, Senior Research Fellow – Energy related issues,
Center for Strategic Studies under the President of the Republic of Azerbaijan, said that the development of the Southern Corridor meant a great deal for her country and Shah Deniz gas as well as for “future generation” gas.
She stated: “The Azerbaijani goal as a gas producing country is to penetrate the European market, to bring gas to European consumers.”
The maximization of revenues and taking the greatest advantage of Azeri gas to European markets, she said, was also crucial. It was a question, noted Ms. Rzayeva, how SOCAR would market the gas: field by field export or one single entity.
“If the Azerbaijani government decides to export the gas field by field, then the advantage would be that SOCAR would take less risk regarding the export because that would be shared among the partners, making different terms for each field.”
The second option, she said, would be marketing the gas via a single entity, likely to be SOCAR.
She explained, “This scenario would create a virtual pool where SOCAR would buy the gas from the partners and sell this gas as a single entity to
the European market, which would give SOCAR more flexibility to market this gas.” This would be good, she said, for addressing the challenges of the market.
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When asked why the Trans Adriatic Pipeline (TAP) whose final destination is Italy was chosen by the Shah Deniz Consortium over the Nabucco pipeline project, Ms Rzayeva said that Italy was the best positioned to transit the gas to other countries, but investments in reverse flow were
needed to facilitate that.
An even bigger piece of the Southern Corridor, plus East Med
Speaking about the importance of the Southern Corridor, Lisa Givert, Head of Communications, Trans Adriatic Pipeline (TAP), said that TAP was part of a value chain comprising USD 40 billion, which would bring new and diverse sources of natural gas supply to Europe.
“As and when new gas supplies come onstream, TAP can easily expand to double the capacity to accommodate those new supplies. Regarding interconnectivity, we are doing quite a lot of work with a number of partners,” she said, offering that TAP had recently signed a memorandum of
understanding with, among others, Interconnector Bulgaria-‐Greece at the beginning of the year to explore interface opportunities.
In a session dedicated to Eastern Mediterranean natural gas, Charles Ellinas, CEO, Cyprus Natural Hydrocarbons Company and Representation of Ministry of Energy, Commerce, Industry and Tourism, Cyprus, reported that a lot was happening in the region.
“Between us and Israel, we probably have enough gas to be able to supply the European Union with something like 20-‐30 BCM/year by 2025,” he said, adding that some of that still had to be proven.
Exploration would soon commence by ENI and Total, he said, meaning more would be known by the end of 2014. Meanwhile, he said, the
Leviathan field was being developed in Israel, where 40% of its gas had been approved for export. Noble Energy would start its development there with exports to Israel, followed by floating LNG and then export to regional markets.
Of Cyprus' plans to build an LNG plant at Vasilikos, Mr. Ellinas stated: “In order to proceed with that project, we need gas from Israel and we hope that that is going to be the case.”
Most gas from Israel, he explained, would not go to Europe; what would go to Europe depended on what ENI and TOTAL found, and on how
FLNG developed in the meantime.
“The region hopefully will be contributing to Europe,” he said.
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New resources, diversified routes, big expenses
How would Europe benefit from increasing natural gas resources and diversifying routes was the question grappled with by John Roberts, Energy security Specialist, Methinks speaks.
One source of gas, among the numerous he listed and evaluated, was from the Southern Corridor, a costly proposition.
“We're talking about USD 50 billion for the whole chain, and it is not complete. TANAP (Trans Anatolian Pipeline) is being built with expansion in
mind; TAP (Trans Adriatic Pipeline) is being built with expansion in mind and we've heard it can be incremental.”
Meanwhile, USD 4-‐5 billion was being spent on the South Caucasus Pipeline, but only to the full extent that it could carry the full output of Shah Deniz II in addition to Shah Deniz I. With additional source considerations, like the Absheron gas field, a loop pipeline of 200km through the mountains of Georgia might be required, at significant cost. He commented, “That's at least a couple of billion dollars.”
Without that investment, he opined, there would be no scope for such gas developments down the line, including from Turkmenistan.
Of TANAP's costs, he said they ranged USD 7.9 to 17.9 billion.
“We are talking about an awful lot of money. A report on Natural Gas Europe said it could cost as much as USD 20 billion. No wonder Statoil and
TOTAL got cold feet, questioning whether there was any present value in the project; if you're BP that's part of the capital outlay that you have to pay,” he said.
Still, according to Mr. Roberts, it would be built and would be able to carry more than the initial 10BCM. “So it does provide the backbone to cover the basic core of a new artery to Europe.”
